The Manufacturers Association of Nigeria (MAN) has urged the Central Bank of Nigeria (CBN) to explore avenues to resolve outstanding obligations on foreign exchange forward.
Segun Ajayi-Kadir, the director-general, MAN, who made the call in a statement on Thursday in Lagos, said that resolving the outstanding foreign exchange obligations would minimise its implications on the manufacturing sector.
Foreign exchange forward contracts are financial instruments to enable businesses to hedge against exchange rate fluctuations by locking in a future exchange rate.
The CBN traditionally issues these contracts, promising to deliver foreign currency at a specified future date in exchange for upfront naira payment.
Mr Ajayi-Kadir, however, said that the CBN recently announced its inability to honour 2.4 billion dollars worth of forward contracts.
He said that the apex bank cited an ongoing investigation by the Economic and Financial Crimes Commission (EFCC) into some foreign exchange transactions as reason for its inability to honour the contracts.
The MAN D-G said that many businesses borrowed money from banks for working capital that was used to open a clean line for letter of credit based on the allocated forward contract from the CBN.
He said that the 2.4 billion dollars worth of forward contracts from the backlog of seven billion dollars had triggered a severe crisis for the manufacturing sector and the Nigerian economy.
He said that businesses with substantial foreign exchange liabilities faced acute credit and liquidity risks due to their inability to settle forward contracts.
Mr Ajayi-Kadir urged the CBN to give serious and expedited consideration to the imperative of the sanctity of contracts and prioritise the interests of businesses that have acted in good faith.
According to him, reneging on these legally binding contracts potentially undermines the CBN’s credibility and may damage investor confidence.
“Worse still, the commercial banks have continued to charge dollar accounts along with other Naira bank charges such as 35 per cent interest rate on the facilities that these companies have with their banks.
“This rather worrisome breach of contract has further exacerbated currency risk for businesses, leading to substantial financial losses and operational disruptions.
“The resulting financial strain on manufacturing businesses has led to widespread closures, job losses, and economic turmoil,” he said.
He said that MAN called for collaboration between the CBN, the federal ministry of finance, and the private sector to develop a sustainable framework.
“The framework will be for resolving outstanding forward contracts and improving foreign exchange inflows so as to prevent further damage,
“By prioritising the survival of the manufacturing sector, the government can mitigate the negative impacts of this crisis and foster economic recovery,” he said. (NAN)
